Oral History Collection

This is an archival or historical document and may not reflect current policies or procedures.

Robert M. Ball - Interview #4

This is another session in the Bob Ball oral history interview.
This session is taking place on May 1, 2001 at Mr. Ball's home in Alexandria,
Virginia. And again, it's Larry DeWitt interviewing for SSA.

Interviewer: Bob I was telling you that I've been at the National
Archives listening to some of the newly released Nixon tapes. One of the
tapes I was just listening to from 1972 was a meeting at the White House
between Richard Nixon, Elliot Richardson, and Russell Long. And, I guess,
Ehrlichman and Haldeman were there. But, basically it was Nixon and Russell
Long, and mostly Russell Long talking. (Laughs) One of the things they
talked a lot about in this conversation was the Kennedy Health Plan proposal,
which you were the author of. They were both criticizing it relentlessly.
It was clear that both the Administration and Russell Long were opposed
to the Kennedy Health Plan proposal. Was this the bill you authored for
Senator Kennedy?

Ball: No, the Kennedy-Mills Bill, which I really was
the author of, was after I left the government.

Interviewer: OK. This would have been in 1972.

Ball: That must have been the basic Kennedy Bill, his
own bill, which I actually did favor, but I wasn't the author of it. That
came out of Kennedy's own work. It was Labor's bill really. Kennedy and
the AFL-CIO were for a national health insurance plan, covering everybody.
He was for that for years and years, as a basic plan, going way back.
What I did--which we have been into, I believe, so I won't do it again--except
to say what I did was to take the Nixon proposal, after I had left the
government, and I took the amount of money that Nixon was willing to spend,
and then I said, "Let's take that same amount of money and instead
of having it be a private system," which was Nixon's plan, "let's
put that amount of money through the government." We would, in effect,
have half of what Kennedy-Labor had been proposing right along. And that
became the Kennedy-Mills Bill. Russell Long was against that too because
he favored what's really a catastrophic approach, which was to cover,
through government, only very large expenditures after a big deductible
of three of four thousand dollars a year, then cover costs beyond that.
I had actually worked up Long's bill for him too. As soon as I proposed
this new plan to Senator Kennedy, he took me over to see Long, on the
Senate floor, to try to talk Long into supporting this new plan.

That's the difference on that.

Interviewer: OK.

Ball: And, off hand, without checking it, I don't know
exactly when the Kennedy-Mills bill came in. But it created quite a stir.
There were very good editorials from the Washington Post and the New York
Times on it. It looked like a real hope, but it was Labor's failure to
support it that doomed it. If I had to just guess right now, I think it
was about 1974.

Interviewer: OK.

Ball: But, I'm not sure. I'd have to look it up. It's
easily available in history sources.

Interviewer: All right. So, the earlier Kennedy proposals were for
national health insurance?

Ball: Yes, National Comprehensive Health Insurance, and
everybody on the Republican side were always trying to think up good ways
to oppose it.

Interviewer: But, even the Democrats were opposed to it.

Ball: No, I wouldn't say the Democrats.

Interviewer: Or at least Russell Long and some of the conservative
Democrats.

Ball: Oh, yes, sure. You could say the Democrats were
split. Long was trying to get something going on the basis of a big, big
deductible, a catastrophic plan. It would cost a lot less, of course.

Interviewer: How about guys like Elliot Richardson, and the liberal
part of the Republicans? Were they sympathetic?

Ball: No, I don't think so. I think Richardson was sympathetic
to the continuation of Medicare, but that he would prefer a less comprehensive
plan than Kennedy was proposing, he would have wanted something less.

Interviewer: Let me take just a second and figure out where we want
to go next.

Ball: The next logical major subject--though that may
not be what you were going to do--, would be the 1972 Amendments.

Interviewer: Well, that is one of the things I wanted to talk about
today, so let's do that. The 1972 Amendments had some important things
in them. One of which, of course, was the automatics.

Ball: Yes.

Interviewer: Well, why don't you just go ahead and tell me what I
should know about the '72 Amendments. (Laughs) Did you tell me before
that you initially didn't support the idea of the automatic COLA? Or,
am I confusing . . .

Ball: No, you're confusing me with some other people.
(Laughs)

Interviewer: OK.

Ball: But that is an interesting story.

The history of the automatics has some depth to it. It didn't just happen
in 1972. Among the first people who were actually for the automatic provision
was Mel Laird, a Wisconsin Congressman, later Secretary of Defense. He
was the Ranking Republican on the Appropriation Subcommittee that dealt
with Social Security. Dan Flood was the Chair, and Mel Laird was the Ranking
Republican. They worked very well together. Mel was very supportive of
Social Security. We got to the point where he considered himself a good
friend of mine. When he left the Defense Department, as he was leaving,
he was going to tour the military posts all across the country to say,
"Goodbye," to the troops and the officers. He wanted me to go
with him. He called me up and asked me to fly around with him. (Laughs)
That was just not something I was likely to do. At that time, he was in
extremely bad repute with Democrats, particularly liberals.

Interviewer: Over Vietnam?

Ball: Over Vietnam, and I wasn't about to fly around
with the Secretary of Defense. But, that's just an illustration of how
much he had come to regard me as a friend, out of the role that he had
back as a Congressman, when he was the Ranking Republican on the Appropriations
sub-Committee.

So, I don't know where it actually came from, but he was the first person
I knew to actually introduce a bill on this. Of course the Appropriations
Committee doesn't have substantive jurisdiction. This was just something
he wanted to be associated with, because he was interested in Social Security
and he thought it was a good idea. He used it in his campaigns--that sort
of thing.

But the first time that it was supported in the substantive committee,
Ways and Means, was by John Byrnes, who also was from Wisconsin, and he
was the Ranking Republican on the Ways and Means Committee--where his
views would make a lot of difference. I think this idea, to an extent,
came from Bob Myers. Bob originally was very intrigued with the concept
of automatics, and still is. In fact, he would like to make almost everything
automatic. Maybe it makes it easier to make estimates if you know everything
is going to keep up with everything else. So I think probably, he was
a source of Byrnes' interest in this.

It became quite an important public issue before 1972, in terms of pushing
the idea.

Now, the line up, pros and cons, was pretty interesting in the light of
later developments. One the one hand there was Labor and Wilbur Cohen,
who were always allies. Wilbur almost never let any kind of daylight between
him and the labor movement, in terms of policy in Social Security. Usually
I was with them too. But they took the opposite view of the Republicans.
I guess, the way to say this in an orderly way is to ask, "The people
who were for the COLA, the Republicans, what was in their minds? Why were
they proposing this?" They made it very clear; there was no secret
about it, they were for it because the program dropping behind, so that
the benefits were less in purchasing power because of inflation had been
the excuse that was used time after time to amend the Social Security
Act. Whenever benefits slipped behind, that started a major drive by Labor
and the Democrats, generally, to fix that. And, almost always, when attention
was paid to the program, more was done than just keeping up with the cost
of living. It wasn't just the COLA. The Democrats would add other things
to it. So the whole strategy by the Republicans in supporting automatic
cost of living increases, was to keep the program from being amended--which
almost always expanded the program. Their idea was to slow it down; and
the way they thought to do that was through the cost of living proposal.

Interviewer: That's ironic.

Ball: Yes. Now the Labor Movement and Wilbur, as I started
to say, fell in with that analysis and took the opposite view for the
same reason. They were afraid that once you had an automatic provision
for the cost of living, they wouldn't be able to get the attention of
the Congress for other improvements in the program.

Well, I disagreed with that strategy. I had been concerned about the degree
of lag that there was between the time the cost of living increased and
when benefits were adjusted. Although, the program did keep up to date,
not just with the cost of living, but with wages. Over a period of time
the benefits would fall behind, and then they would be increased, and
they would fall behind, and then be increased. But in the mean time, people
were dying by the thousands. I mean, old people have high mortality rates.
And if you take three or four years, or even two, to catch up with the
cost of living, a lot of people had the experience of not being able to
buy what they had previously been able to buy. So, I thought the automatic
cost of living was really a very desirable and good addition to the program.

I had an occasion, as Commissioner, to have a part in getting a cost of
living adjustment for federal employees. John Macy, who was the Chairman
of the Civil Service Commission at the time I'm speaking of, proposed
an automatic cost of living adjustment for retired civil servants in the
Civil Service Retirement System. And he had to deal with the Bureau of
the Budget in trying to get support for making it an Administration program.

Maybe not everybody who reads this oral history will know that the President's
program is made up of recommendations from the major agencies. But they
don't become part of his program until he gives approval to that particular
legislative initiative. And the arm of the government that he uses to
staff out proposals is what's now the Office of Management and Budget,
OMB, and was the Bureau of the Budget. There was a legislative section
in the old Bureau of the Budget, and there probably still is, that reviews
all new proposals for the President, and clears reports on pending bills
introduced by others. Congressmen were always introducing bills on subjects
in the jurisdiction of some department. And the Congressional Committees
would ask the agencies to tell the Committee what they think of those
bills. Well, they would write a report. But, before it's released, it
goes to a section of the Bureau of the Budget (or OMB). When I was there,
it was headed by a really competent guy named "Sam" Hughes.
They provide clearance to a report by saying it's in concord with the
program of the President. And, if it isn't, you are not supposed to send
the report. You have to let your views be known, if you want them known,
some other way, but not through an official review.

So, to get back to the main line of this story on civil service COLAs,
when it came to a question of getting support for automatic provisions
in the civil service retirement system, the Bureau of the Budget and Macy
wanted my views as head of the Social Security system, since it was a
retirement program and similar to Social Security, and so on. I attended
meetings at the Bureau of the Budget with Macy on this. I was very enthusiastic
about it, not because I was particularly focused on civil servants, but
because I wanted it as a precedent for the Social Security system, because
having it there would be very important in the argument to have it be
part of the President's program when came Social Security's turn.

So I was well on board in favor of automatic provisions to keep up with
the cost of living, as a matter of principle within the program, and did
not take this tactical view of the situation that Labor and Wilbur Cohen
did. That was also reflected in the difference between Wilbur Mills and
John Byrnes. Mills took the view, not so much that you wouldn't get the
attention of the Congress for expansion, because he was very conservative
and he wasn't interested in expanding it all that much. On that theory,
he might have been on the side of Byrnes.

Interviewer: Yeah, that's what I would've thought.

Ball: But, what he was interested in was the Congress
getting credit with beneficiaries for voting for it. If it's automatic,
the politicians get nothing out of it, except the first time they vote.
He was willing to have it come up every couple of years, and vote for
it every couple of years. He liked that a lot.

So, Mills opposed it on those grounds. The Democrats had been in charge
of the Congress for so long (there was just one exception for a couple
of years there) and he expected to stay in control of the Congress, and
he wanted all of his Democratic colleagues to help him stay there. So
every few years, when they're up for re-election, they could put out what
they characterized as a benefit increase, even though it was just keeping
up to date with purchasing power. So, that was his view. And, as I say,
he had liberal support on the basic idea, for other reasons.

So, Democrats and liberals, for slightly different reasons, were opposed
to the automatic cost of living adjustments, whereas the Republicans--or
at least John Byrnes as a leader of the Republicans, he didn't have all
the Republicans--was for it as a brake on the expansion of the program.

Interviewer: Now, what about Nixon? Nixon supported the automatics.

Ball: Yes, now we come to . . .

Interviewer: He proposed it himself several times.

Ball: Yes. Although, I don't know if it was several times.

Interviewer: What was his motivation?.

Ball: When he came into office in 1968, one of his major
proposals was an automatic Social Security cost of living-- he just picked
it up from Byrnes and the Republicans in the Congress and made it part
of his program. I was still Commissioner in the first Nixon term and that
was very compatible with what I thought, so that was fine. Nixon didn't
have enthusiastic support of all his own immediate staff--Arthur Burns,
who was his Chief Economic Advisor-- was very much opposed to the automatic
cost of living on the ground that it removed one of the brakes on inflation.
Burns' main focus--and economists generally, but particularly conservative
economists--main focus had been for a long, long time to prevent inflation.
He thought if older people getting Social Security had their benefits
protected against inflation, they wouldn't care whether there was inflation
or non-inflation and therefore one of the powerful voting blocks would
be neutralized, in terms of a fight against inflation. So he fought within
the Administration to prevent going ahead with an automatic provision
and really pretty much argued it right up to the end. He and I held a
joint press conference when it finally passed. I had to carry most of
it because he didn't . . .

Interviewer: He didn't want to do it?

Ball:(Laughing). He still didn't like the idea.

Interviewer: Was Nixon's motivation the same as Byrnes' motivation?
Do you think he wanted it to be a legislative brake?

Ball: I would think so. He may not have thought it through
to the same extent. He recognized it to be a Republican position that
he could promote as being pro-Social Security, so it's not entirely unmixed.
Nixon was less of a domestic conservative than people now paint him. He
was for quite a few ideas that would be considered liberal today, most
notably the Family Assistance Program.

Interviewer: Right. Well, let me ask you one other argument that I
sometimes have seen made about the COLA. That there was a conservative
reason to support the COLA along these lines: that because the COLA was
not based on any kind of automatic calculation of inflation but was in
effect a political negotiation, what happened in Congress, whenever a
COLA was issued, there was a tendency to have a bidding war and that sometimes
the COLA amount would be more than the actual rate of inflation.

Ball: That's true.

Interviewer: And that one of the reasons that some people supported
the automatic COLA was to prevent that kind of bidding and to keep the
COLA amounts down. So there was a conservative argument in that direction.
Is that true?

Ball: Larry, that's really the same point that I made
first. Before the COLA was automatic they didn't necessarily think they
were doing a COLA. They thought they were doing a benefit increase. And
the starting point of the argument would be, "Well, we have to restore
purchasing power." But then the Democrats would just include that
adjustment in a higher benefit increase. So that's the first point. Getting
attention to the COLA resulted in liberalizations that went beyond the
COLA. Sometimes in a higher benefit increase, sometimes in other liberalization.

Interviewer: OK.

Ball: But that's that same . . .

Interviewer: That's part of the same argument?

Ball: Yes. That's really the basic argument. The other
one is Mills' political argument, "We want credit." That's all
there was to that.

But when it first comes up for an actual vote, Mills suffered what was,
as far as I know, one of only two defeats in his whole regime as Chairman
of the Ways and Means Committee. He was a very careful man. He did not
take a bill to the Floor unless he knew he was going to win. He was defeated
early in his career as Chairman on a non-Social Security measure and it
stung him badly. From then on, he was extremely careful. The papers always
wrote about him as "the powerful Chairman of the Ways and Means Committee,"
and he valued that very much--that he was in control. The idea of taking
a bill to the Floor of the House and losing on it, or even losing a major
provision in it that he hadn't agreed to, was anathema. So, usually he
and Byrnes were able to agree in Committee so that the Republicans on
Ways and Means supported the Committee's position. Well, here is this
real difference on the automatic cost of living issue and Mills loses
on the floor of the House. Byrnes actually gets the bill directed back
to Committee with instructions not to bring it out unless they have in
it this automatic cost of living provision. The majority of the House
goes with Byrnes against Mills.

Interviewer: So the bill that came to the Floor did not have the COLA
provision in it?

Ball: That's right.

Interviewer: And Byrnes makes a motion to recommit?

Ball: Yes, with instructions to add it in.

Interviewer: And he succeeds.

Ball: Yes.

Interviewer: Those kinds of motions don't usually succeed.

Ball: No, never with Mills. So he's pretty shaken, actually.
This session of Congress runs very, very late. I'm thinking about next
year and I want to get the COLA. The Nixon Administration is for it, I'm
for it. Mills has been defeated, so I go to see Mills on New Year's Eve.

I have written up in the car going over to see him, on a yellow pad of
paper, an approach for next year for what I want him to make the first
bill of the session--HR 1. I tell Mills, "Here's what I think you
ought to do, and you ought to make it the first bill of the next session.
You ought to be for the cost of living adjustment, but you should write
it in a way that leaves the Congress in control, so it's not just automatic,
because your whole point has been that you want the Congress to be in
control." Now really, of course, his whole point was that he wanted
the Congress to get the credit, but I'm giving him something that would
be consistent with what he said. And Mills eventually agrees, and the
automatic provision is written--the one I'd written that I had gone over
with him that night--the provision is written so that if the Congress
acts on its own to pass a benefit increase (whatever it may be), more
than cost of living, less, or the cost of living, then that's what governs.
The automatics only go into effect if the Congress has not acted.

Interviewer: OK.

Ball: So the Congress is still in control. That's the
thing.

Interviewer: OK.

Ball: So Mills buys that, and I believe the provision
is probably still written that way. I haven't looked at the Act on that
lately, but I think it's probably still written that way, so that a move
by the Congress can take the place of the automatic COLA.

Then, with Mills supporting this, of course it passes the next time, in
the next session of Congress. Nixon's proposal wins with this new support
and Labor and Cohen are easily reconciled to it. It isn't a matter of
great regret to them that it has passed because their concern clearly
has not been justified. It has been possible to continue to do what should
be done with the Social Security system without having to keep using the
cost-of-living issue to get Congressional attention. In fact, I think
it's very clear that you never would have kept up with the cost of living--if
we hadn't had an automatic COLA--during the late '70s-early '80s with
the financial problems the system had, and the huge inflation of 14 per
cent in 1980, for example. We would never have been able to get the votes
to increase benefits that much at the same time that the system was running
out of money.

Interviewer: Right.

Ball: So the cost of living would not have been maintained
if it hadn't been for the automatic provision.

Interviewer: OK.

Ball: So it was a very good thing to do.

Interviewer: OK.

Ball: And I think the opponents realized that later,
but at the time there was this difference of opinion.

Interviewer: The other thing that happened associated with the 1972
Amendments was that there was a 20 per cent COLA for that year--as part
of the '72 Amendments.

Ball: There was a basic increase in benefits of 20 per
cent. That's a whole different story.

Interviewer: Wasn't that increase the result of a bidding war between
Mills and the Administration?

Ball: Well, I wouldn't really put it that way. Let me
characterize it this way.

There are two things going on here. One is that Mills has become ambitious
to run for the Vice Presidency on a Kennedy ticket. Now no Vice President
says he wants to be a Vice President, he talks in terms of being the President-and
Mills, technically, was running for President, but he knew that his only
realistic shot was a chance for the Vice Presidency-which is really what
he wanted.

Interviewer: OK.

Ball: So he's interested in making a splash. But basically
he was a very cautious man, who is very devoted to the idea of leaning
over backwards to be sure everything in Social Security was fully financed.
There is a slight mood change here in that now he's ambitious and he wants
to do something fairly spectacular. You know, a 20 per cent benefit increase
is really the difference between the program just kind of limping along,
as far as people were concerned, and it have a real impact. This is the
first change in Social Security that really raises the benefit levels
so that it becomes a very important part of people's planning for retirement,
and a very important part of getting rid of poverty among the elderly.
It is this 20 per cent that does more to get that done than any other
single thing I can think of--except you go way back to the 1950 Amendments
which came out of the 1948 Advisory Council, which really saved the program.
But here's the one that really makes the difference now in the poverty
statistics, and makes people think they really have protection of real
value.

So Mills is now open to the idea of something quite significant. What
makes it possible is the change in the way the cost estimates are made.
This grows out of the automatic provisions--the issues are interrelated.
Bob Myers, the Chief Actuary of Social Security for most of the time up
until then, had a built in safety-valve in the estimating procedures he
used. There was a basic assumption made in the long-range cost estimates
that prices and wages would stay the same forever-increases were not built
into the estimates. And, of course, they did go up, and people knew they
would go up. And since wages determined the income and prices tended to
determine the outgo to the program, if the wage increases were more than
the price increases then a margin develops so that the system has more
money than had previously been estimated. Then you can use that money,
first of all, to make any needed adjustments in the estimates, because
something turned out wrong and the program is going cost more than you
thought. So the first thing you can do is you can now look at this new
surplus and use it to correct the estimates-first you take care of that-that's
the safety-value part. Then you can use any remaining surplus to support
an increase in the program.

Well, when the automatic provisions became law, or were just about to
become law, it was clear that you could not go on pretending that wages
and prices were going to be flat forever in the actuarial estimates, because
here you had a law that said they are going to be increased with changes
in prices and wages. So you really had to estimate for the first time
what those future prices and wages would be. Well, a reasonable estimate
of the gap between the two, carried on into the future, produced, without
anymore financing, the ability to pay a 20 per cent increase of benefits.
Just that change in the estimating procedure made a 20 per cent benefit
increase possible.

Interviewer: So, it was the same kind of adjustment, but we were doing
it prospectively rather than retrospectively, so to speak. Am I making
clear what I'm saying?

Ball: In the past, it was never recognized in the estimates
that there would be any change in wages and prices until they occurred.

Interviewer: Until afterwards, right. That's what I was trying to
say.

Ball: Now, I took these new estimates, with a 20 per
cent benefit increase, up through the hierarchy in the Administration
trying to get them to support a 20 per cent benefit increase. Elliot Richardson
was Secretary. I think he was quite sympathetic to the idea. That would
have been quite a coup for the Republicans in this traditionally Democratic
program to be for a 20 per cent benefit increase, and have it fully financed
without having to increase taxes. But, he couldn't get the Bureau of the
Budget, or the political people in the White House, to go along with it.
I don't really know how hard he tried. He seemed--when he talked to me--to
think it was a good idea. He did take it further up the chain of command--there
is no question he took it further--and he was turned down.

Interviewer: We might find something about that in Nixon tapes, that's
one of the things I'm looking for.

Ball: That would be good.

Nixon, in the end, actually recommends a five per cent benefit increase.

Interviewer: OK, that's what I was trying to get at.

Ball: He recommends a five per cent benefit increase,
but I showed them a way to make a 20 per cent benefit increase. Well,
Mills knows a lot about the Social Security system. He's really expert.
So he asked me about this, what the change in the estimating procedure
would produce. And I had to tell him. I told him, "20 per cent."
So he takes that and puts it in his bill.

Interviewer: Ah.

Ball: And that's the story of the 20 per cent benefit
increase in 1972.

Interviewer: So, this is really the Bob Ball 20 per cent increase!
(Laughs)

Ball: Well, Mills asked me for the figure.

Interviewer: I understand. OK, fascinating.

Ball: Now, I was very much interested in getting that
20 per cent. I thought it would make a tremendous difference. As you could
see from the story, I'm not, as some people may think, a Democratic party
proponent, primarily. I was a Social Security proponent, and I was willing
to push a 20 per cent increase even if it helped the Republicans.

Interviewer: OK.

Ball: I'm basically a Democrat by the coincidence of
the programs that they support, of course. But if the Republicans want
to support a good proposal in Social Security, I'm for them on that issue.

Interviewer: OK..

Ball: So that's how that all happened.

Now, as you know, there was a flaw in the automatic provisions. I resisted
calling it a flaw myself, but everybody else does, so I'm willing to say
the word. The thing is that the provision would have worked fine as it
was written, under the assumptions that were quite reasonable to make
at that time. If wages had continued to exceed prices, as they had done
throughout American economic history, and are now doing again, there would
not have been the problem that developed. The problem was really that
the actual operation of the economy did not reflect the way it had always
worked before. Under certain circumstances where wages did not rise significantly
faster than prices-and this happened in the 1970s--you would get a situation
in which the replacement rates would rise continually faster than income.
So the replacement rates would keep going up and up. We were at the point
where, after two or three years--under the assumptions that were then
being made on the basis of the way the economy looked--you would have,
in the long run, retirement benefits that exceeded the wages people got
when they were at work.

I never thought that problem should be taken too seriously because Congress
is not going to sit still and let the system develop in a way that actually
produces benefits higher than wages. No one would favor that. So, to my
mind, it was always just a question of how soon would the correction be
made? The fact that it was going to be made, I thought, was obvious. So
the projections were that the system was something like six per cent of
payroll out of balance at one time-if you took the exact way the law was
written on the assumptions that were made. But it was clear that was not
going to happen. So it has always been something of a mix-up in the way
the history is told about Social Security as if there was this huge benefit
cut in 1974, or sometime around there. A huge benefit cut only from a
level that was obviously never going to be allowed to go into effect.

Interviewer: Right.

Ball: Am I making myself clear?

Interviewer: Yes, yes.

Ball: Well, people look at and when you say, "there's
never been a big cutback in Social Security." "Oh, yes."
they will argue. "There was a big cutback in Social Security back
in the days when they reduced the benefits, so they didn't pay more in
retirement than wages while working--there was this cutback."

Interviewer: Now, is this related to the Notch?

Ball: No, the Notch is sort of a side issue.

Interviewer: OK, this is a different issue.

Ball: I'll tell you where I've written it, I think clearly,
and in some detail. It is in my 1978 book. You will find a detailed statement
of how the law was drafted and how it was okay under what were reasonable
assumptions when it went in to effect. But, then what happened and how
it had to be corrected.

But it didn't get corrected very soon, the Congress took it's time. That's
where the Notch comes in. The Congress did not correct it for five years.
So that some people who were retiring in those particular years, turned
out to get higher benefits than had been intended on the part of the Congress.
Now the people who came after them wanted their benefits to be as high
as those who got mistaken benefits. The simple solution would have been
to cutback those benefits for people getting too much.

Interviewer: OK, I understand that.

Ball: But Congress is not going to go back and cut people's
benefits after they have been receiving them. And I don't think they should
because people have already come to rely on benefits of a certain level,
and so on. So the notch came in a related matter, but is a completely
different thing than this projection of where the program would have gone
if it had been untouched. Bob Myers and I wrote about the Notch and we
called them--instead of the Notch Babies--we directed attention to the
ones who got too much, and we called them the Bonanza Babies. We wrote
a piece for the Washington Post on the Bonanza Babies. Well,
they were just the beginning of what would have been this huge increase
in expenses down the road, 25, 30 years later. They were the beginning
of it. The amounts they got were unintended, but relatively small, because
it didn't go on very long. So that brings those two things together.

Interviewer: I'm sorry to confess it, but this is something that I'm
still a little confused about. I've had you explain it to me now, and
Bob Myers explained it to me a couple of times, and I am still confused.
As I understood it, the Notch was created when Congress phased-in the
change, the reduction, the correction. That's what created this notch
period. This is basically as a result of the decision to phase it in,
rather than to do it all at once. Is that correct?

Ball: I wouldn't have thought of it that way, no. I don't
see what you mean by the phasing in.

Interviewer: Well, there was a five year period in which--rather than
making the adjustment all at once, saying the adjustment takes effect
immediately. . .

Ball: Which adjustment are we talking about?

Interviewer: Well, that's why I'm confused. (Laughs) The problem that
led to the Notch, I had understood, was a sort of double-indexing problem
that came because the wage base and the benefit amount were both indexed
on an automatic provision.

Ball: No, you've got some things confused there. But
you've got hold of the right key, which we didn't really discuss. I think
the best place that I deal with this in some length is the '78 book. But
the basic way the conversion is made to a new benefit level is through
a table written into the law. That table expressed an increase in benefits
for everybody, not just those on the rolls, but it took the same increase
and gave it to all beneficiaries for the future.

Interviewer: OK.

Ball: So you have a new, in effect, a new benefit formula,
but it's written in the table.

Interviewer: OK.

Ball: And that has been revised to include a cost of
living increase. What the table looks like is benefits related to average
wages. For people who have average wages of a given amount, this is their
benefit amount. Now what's happening is that those average wages themselves
are going up in the future. And this table is going to govern the benefits
of the future. You look at that table ten years from now, it's not these
same average wages. It's average wages as they have risen with the level
of wages in the country. So that these average wages are all higher. Now
if there hadn't been any wage changes, the table would have kept benefits
up to date with prices. With the wage changes the benefits are rising
with wages and prices, which is okay as long as wages, which governs income,
keeps ahead of prices. But they didn't.

Interviewer: Right.

Ball: Well, the solution was to decouple the two, so
that they weren't connected. But, that's my point. There would not have
been a problem if prices hadn't gone well beyond wage increases.

Interviewer: So, if the relationship remained stable, so to speak,
between wages and prices.

Ball: Yes, it would have been OK.

Interviewer: All right.

Ball: But they didn't remain stable. And some people
have described this situation without really understanding it, as double-indexing.
But they would be stupid to double-index. The people who wrote the law
did not deliberately double-index it. It was deliberately indexed to keep
future benefits in line with wages, not just prices.

Interviewer: OK.

Ball: The problem grew out of the fact that the
whole benefit formula had been changed to take account of the change in
the cost of living and the table in the future also reflected higher future
average earnings. This would be okay normally, but not if prices went
ahead of wages, then it was not so good. It created an impossible situation
for the long run of benefits exceeding what people had earned. This clearly
had to be corrected. But since they didn't correct it right away, that
meant that some people got more benefits than really had been intended,
and they were the Bonanza Babies.

Now, Bob Myers has a different thing going, separate from all this. It's
really a defense of his own record that he is interested in. He says that
at the time this provision was adopted, or when the correction was made,
that he had advocated a way of doing it in that would have meant that
this notch problem would have been much, much less. But the Social Security
Administration people told him it was too complicated, too difficult,
they couldn't do it. So he had a better way, in his view, of making the
change, making the correction, than was actually adopted.

Interviewer: OK.

Ball: The expert on this is Larry Thompson.

Interviewer: That's right.

Ball: Because Larry really made the decisions on how
it was done. I don't think Larry's too proud of how it came out. And Bob
wants to be sure that nobody thinks that he had anything to do with it.

Interviewer: So the ideas for how to make the correction came out
of SSA, they didn't come out of the Congress?

Ball: Right. This is all highly technical stuff. Whatever
was done wrong, was done by SSA people. And the corrections were done
by SSA people.

Interviewer: OK.

Ball: I wasn't there. I was involved in the original
provisions in 1972. But I had left the government by the time they were
trying to fix this.

Interviewer: Right.

Ball: So it was Larry Thompson's responsibility. And
Bob Myers is kibitzing on it. He isn't in the government any longer either.
But, he was frequently a Republican consultant at a technical level. So
he had this proposal that's not accepted. He says if it had been accepted,
there wouldn't have been nearly as big a problem.

Interviewer: There wouldn't be a notch, or not as bad?

Ball: Well, not as bad.

Interviewer: I don't think the Notch could have been avoided entirely.

Ball: I think he's right, it wouldn't had been as bad.

Interviewer: The notch is a political phenomenon, that's why it would
not have gone away. Whatever technical issues there are here, the Notch
became a political phenomenon.

Ball: Oh, it became that, yes. But Bob would argue that
the Notch wouldn't have been visible enough to have created a political
problem. He's very anxious to insist on that. But the explanation of the
original provision, and how that went wrong, in all modesty, I think the
best explanation is what I did in my 1978 book.

Interviewer: All right, I will look at that again.

Ball: But, the Notch thing . . .

Interviewer: Sometimes I think I understand this, and then sometimes
I lose my grip on it. (Laughs)

Ball: Yes, well, it's not important to keep it constantly
in your mind. I mean, it's not something that I would try to memorize.

Interviewer: All right.

Ball: You could always look it up.

Interviewer: Thank you. You're saving me from my embarrassment.

Ball:(Laughs) Maybe we should talk about the
1977 Amendments.

Interviewer: If you want to do the '77 Amendments, go right ahead.

Ball: First of all, it's clear that there is a financing
problem in Social Security. The long-range cost estimates show that some
action should be taken. This is, first of all, quite clear during the
Ford Administration. I'm outside the government now, but I'm working on
it this a lot. I was working with people who had access to the Ford policy
makers, so I pushed the idea that the right solution to bring Social Security
into balance is to increase the maximum earnings base. That increasing
the wage base is what should be done, not a rate increase, and not cutting
back benefits. The Ford Administration buys that idea. They accept that.

The person I worked with--Alan--is still around. I think he has just been
appointed to something in the new Bush Administration. At that time, he
was on the Hill. I worked with him through Tom Joe. Tom Joe was a hold-over
from the Nixon Administration. Actually, it was Secretary Finch and Jack
Veneman that Tom worked for. I went to work with Tom in a non-profit organization
a few years after I left government. But, anyway, this guy was a liberal
Republican, but had influence within the Ford Administration. So they
did adopt increasing the wage base as the right solution.

In Carter's campaign for President in 1976, for at least a year before
the convention, Carter worked very hard at rounding up delegates and getting
people used to the idea that he was a Presidential candidate. He was a
one-term Governor from Georgia, very little recognized within the Democratic
party, or in the country. I had a group of people here at my home one
evening--knowledgeable, top-notch government people--some of them were
think-tank people. And we played a game. We made out slips, with two columns,
trying to guess who would get the Democratic nomination. One column was
who did we think would get it, in order, and the other column was who
we would like to get it, in order. Carter was down like in 18th
or 19th place or something, just barely visible, on both lists.

Interviewer: (Laughs) OK.

Ball: Just barely visible, a year ahead. At the top was
usually Ted Kennedy, in both columns. There were all kinds of people listed
before Carter.

So Carter works very hard at getting around, and getting more and more
known, and one thing and another. Stu Eizenstat-who later was his domestic
policy guy, and has been in a lot of important jobs since--was his domestic
policy person for the campaign. When Carter was Governor of Georgia, he
had asked the Secretary of HEW, probably Finch at the time, to send somebody
down to Georgia to help him deal with the federal requirements in the
welfare system. He was having a hell of a time with the federal government's
requirements, and not getting any very helpful advice from them. So they
sent Tom Joe down to see him, who was very successful-- both in impressing
the Governor and in working things out. So when they start this campaign,
Tom Joe is now outside the government, but with sort of an inside track.
And they're asking him for help in the campaign. So Tom asks me to get
in touch with Stu Eizenstat on the Social Security issues. They don't
have anybody else. There never were very many non-government experts on
Social Security in those days. So Eizenstat and I talked quite a lot about
Social Security. You get pretty close in such a situation. And, I persuade
them, like I had Ford, that the right solution is to raise the wage base,
that that's the thing to do. So it's not an issue between the two campaigns,
as to how to fix Social Security.

I got consulted a lot during the campaign. I went down to Georgia before
the election. Right after the convention--there's a period between the
Democratic convention and the Republican convention, in which Carter is
trying to lay out his plans--in case he should win. (Laughs)
So he has a lot of us down to Georgia, down to his hometown of Plains.
I was there earlier, but now I'm down there after he has been nominated.
And we're trying to work out his program. He has a day with the economists,
then he has a day with the HEW-types from the past. So I'm there on Social
Security, and health care, and Medicare, and related matters. And we hit
it off well. Again, he accepts the idea that the maximum earning base
is the way to do this. And that becomes what he campaigns on.

I'm not terribly active in the campaign. But when he comes to Baltimore,
he talks at a new hospital with a nursing home wing. I go with him. I
tried to get him to modify his attack on the federal government, on the
grounds that Maryland is a close State. There are 10-12,000 Social Security
Administration employees alone here, and there is no sense making them
all the enemy. Eisenhower made the federal government an enemy, and the
bureaucracy an enemy. Most Presidents since have done so. Kennedy was
an exception. Johnson was an exception. Carter went back to, "I'm
an outsider. The problem is bureaucracy." And he attacked the federal
employee.

Interviewer: This sounds similar to a theme President Reagan used
early-on.

So Carter comes into office, and I have now quite a close relationship--more
with Stu Eizenstat than with him, but he knows me and so on. Now we're
getting up to the 1977 Amendments. This is one of the major things that
they have to work on. Joe Califano is Secretary of HEW. Hale Champion
is Under-Secretary. And they develop a set of proposals to fix the financing
of the Social Security system, and to some extent, improve it at the same
time. They did think up a fairly substantial bill. And this is typical
with Carter; he actually believed in more inter-departmental consideration
of things than many Presidents--he used the Cabinet more. And so this
plan of Califano and Champion is circulated to the Cabinet. They call
a meeting where most of the Cabinet was there, not the Defense people,
but all the domestic Cabinet. You know, Labor, Treasury, the Council of
Economic Advisors, HEW and all those people. And, as usual, each one develops
a memorandum of a position on this, which is a basis for the discussion.
So everybody's written a memorandum. And Eizenstat has asked me to write
a memorandum and to come to the meeting. My memo was circulated just like
it was from a Cabinet department. And I'm the only person there who isn't
a Secretary of the Cabinet or other high official.

Califano and Champion, the morning before the meeting, begin to understand
that they had better get me on their side. They hadn't realized that I
was actually going to be an integral part of the decision-making process.
So they asked me to come over for lunch. The meeting is, say, about two
o'clock. They asked me to come over for lunch with them, and I go. Champion
says to me (Laughs), he says, "Just what did you and the
President agree on in the campaign?" I told them what it was. We
went over their proposals, which I had known all about anyway. I said
that I agreed with just about everything that they had in their proposal.
So I went with them to the Cabinet meeting. I supported the proposal in
the meeting. There was some stuff that I wanted fixed up and improved,
but it wasn't central to anything. And Eizenstat told me later that I
had really saved the whole proposal, that up to then the President was
not inclined to go with what Califano was proposing. It was quite a lively
discussion. The Secretary of Commerce, Juanita Kreps, was a Social Security
expert, who I had known for a long time. And she had been sold too hard
on earlier positions. She had adopted what had been a traditional liberal
Social Security position, from years ago, which was, "Let's finance
it one-third, one-third, and one-third. One-third from employees, one-third
from the employers and one-third from the government." Well, by that
time, I'd given up on getting general revenue contributions, and certainly
Carter was not going to buy it. But she was arguing in this meeting for
that method of fixing the financing, rather than raising the wage base.
She wanted to go to one-third, one-third, and one-third.

Interviewer: Was raising the wage base in the Califano proposal?

Ball: Yes.

Interviewer: So that your core issue was in there.

Ball: Yes. And, there were a lot of other good things
in there too.

Interviewer: OK.

Ball: Sidney Blumenthal, the Secretary of the Treasury,
is not too interested, I would say. The big argument is with OMB. There
is a lack of enthusiasm for the Califano proposal. So, Eizenstat, as I
said, told me later that the President really backed it only because I
had argued for it, which I don't think Califano ever quite realized. If
he had, he would have been even more annoyed with me than he was. I got
them to hold out on a few points that I said I would meet later with Califano
and his staff on, and see if we couldn't work out what was bothering me.
So that's how the Carter Administration proposals on the 1977 Amendments
came about.

Interviewer: Fascinating.

Ball: One thing that I tried to get them to change right
in the meeting--it wasn't one of the smaller things that I said I'd try
to work out--I argued that I really thought they should go for financial
changes about which the actuaries could say, "It brought the system
into complete balance for 75 years," as had been traditional. They
were well satisfied to bring it into balance for 50 years. So that the
1977 Amendments are the only Amendments in the history of the program
that accepted 50 years as the right standard for the length of time for
assessing long-range balance.

Interviewer: Was that reflected in the Trustee's Report? Did they
project for 50 years then?

Ball: No, it wasn't reflected in the Trustee's Report,
but it was reflected in legislation. So, that's all it was aimed at--50
years.

Interviewer: OK.

Ball: Then it went to the Hill. I was very active on
the Hill in trying to get this bill passed. I said to Champion, who was
in charge for the Administration in trying to get this done, I said that
I believed that only one person should be in charge of the legislative
process, and I would work for him. That he could relax, I wouldn't be
off on my own trying to do something different than the Administration.
But, I was under no government discipline at all. I was a free agent.

Interviewer: Were you hired as a consultant?

Ball: No. It was just my voluntary effort, I was just
doing this to help the program.

Interviewer: OK.

Ball: But I didn't want them to think I was going behind
their back trying to do something different than what they had in mind.
Now, I'll get around to the wage base in 1973. But first let me back up
and talk about the wage base in 1972 when the automatics first went in.

Interviewer: This is wonderful stuff. I'm glad to hear all of this.

Ball: Well, one way to finance the automatic provisions
is through the wage base going up automatically with an increase in benefits.
If it doesn't, we're going to have to finance it some other way. When
wages rise you are getting all the effect from rising wages up to the
wage base, but you're cut short, you are not getting the full amount of
the increase in wages throughout the country because you are just going
up to the wage base and then stopping. So, to get the full effect, you
have to raise the wage base automatically too. That was our proposal.
The House bought it.

In the Senate, we had a completely different problem. The staff on the
Senate Finance Committee really did not like this whole proposal. The
staff had a different approach. They wanted to really hold down the automatics.
They were almost back to Mills' original idea, "Let's have this come
up now and then, and we'll pass new legislation as we need to." Well,
they weren't so much interested in getting credit for improvement, as
he was, but rather to just keep things under the control of the Congress.
They were not for the automatic-type solutions all the time. So instead
of going along with increasing the wage base all the way to finance this,
they wrote a substitute provision in which the increase in the wage base
supports only half the automatic benefit increases. And you have to increase
the contribution rates on everybody every time the automatics on the benefit
side go into effect. Well, that would kill you. I mean, you couldn't have
constant rate increases. But it gets reported out of the Senate Finance
Committee that way. And, in many other ways, their bill is a problem.

Interviewer: Who's in charge of Senate Finance at this point?

Ball: Russell Long was the Chairman.

Interviewer: So, the Bill as it emerged from the Senate was very unsatisfactory?

Bob Ball: Not the Senate, the Senate Finance Committee.

I got Frank Church to help on this issue. He was Chairman of the Aging
Committee in the Senate, which has no substantive jurisdiction, but Church
was very sympathetic and quite knowledgeable about Social Security. Parenthetically,
he was the one who introduced the first bill on making SSA an independent
agency.

Interviewer: He was the one who put the rider in 1972 on the debt
ceiling increase that actually provided the automatic COLA provision?

Ball: Yes. I consider the Church Amendment substitute
for the Finance Committee provisions to be one of my greatest contributions
to Social Security's development. The Church provisions were essentially
the House version. I don't believe Long cared very much. These were mostly
staff changes and he didn't fight very hard.

Now, that brings me back to 1977 where the only role Church had is that
I got him to save the Retirement Test one more time. People had just about
given up on the Retirement Test. It had very large numbers of Congressmen
and Senators against it. It was a traditional position for the Republicans
always to oppose the Retirement Test. Liberals and the Labor movement,
Democrats generally, had tended to support it because it was expensive
to pay benefits to people who were still at work. And the concept of the
program had always been to partially make-up for income that was lost
when you retire. But we never had a very satisfactory definition of retirement.
And the Retirement Test was always very difficult to administer and a
lot of people looked on it only as a disincentive to work, and all those
arguments.

So it looked almost impossible to save it. The Senate looked like it was
about to go along with the idea of abolishing it altogether. I got Church,
somewhat against his better judgment, to try once more to keep the concept
of the Retirement Test in the program because, as I say, in those days
it saved significant money. And he did do that. And we did keep it by
liberalizing it once more.

Now, what happened--just to follow through the Retirement Test for a minute.
This really belongs in the discussion of the 1983 Greenspan Commission.
But let me talk about it now, just to round out the picture while we're
at it. In 1983--at the end of negotiations between the five of us from
the Commission and the four members of Reagan's staff, which produced
just about all of the 1983 Amendments in the final two weeks of negotiation--Jim
Baker, who was the Chief of Staff for the President, says to me, "Gosh,
we've got to give the President something in this," (Laughs)
"Something that he can point to as the Republicans gaining something
out of this."

We did have it set up pretty well as a defense of the program, and not
much was left of what Ronald Reagan really wanted in this. What he gained
was a big victory by coming over to our side, because the President gets
credit for whatever is signed. So he gained, but he didn't have any of
his principles in it. So, Baker says to me, "What can we do? What
can you agree to put in?" So I said--in a weak moment which I now
think was a mistake--I said, "Well, we could make the Retirement
Test actuarially- equivalent. So what you do is you give a person an additional
benefit amount for every year that they refrain from taking their benefits
earlier. This would eventually be about eight per cent a year, but we'll
build up to it gradually. So in effect, it's the equivalent, actuarially,
of not having the Retirement Test-the long-range cost would be the same.
We still have it, but that can be said to be very much in the President's
direction." Now, I was thinking partly that it was also something
that Claude Pepper would like a lot. He was one of the five appointed
by the Democrats on the 1983 Commission. I had to satisfy Pepper too or
Tip O'Neill would not have been able to pass it through the House. Pepper
was the hero of the elderly, and if he said, "No," to this proposal
that we worked out with the President, O'Neill would never have had agreed.
And, so I was thinking, "Well, this will help with Claude as well
as with the President." Because Pepper always wanted the elderly
to get everything and be free and work if they wanted to. So I proposed
that, and it was adopted, and recommended and became law.

Well, as soon as you did that, there's no longer a long-run cost to abolishing
the Test.

Interviewer: That's right.

Ball: So, over time, I had made it inevitable that they
were going to get rid of the Retirement Test because who is going to vote
for keeping it when a lot of people are against it, if it doesn't cost
you anything to get rid of it? So, that's how it got abolished last year.
I think maybe it was the biggest mistake I made in the history of program
planning about Social Security. But it seemed at the time like something
I really had to do.

Interviewer: I do have a couple of other questions about the '77 Amendments.
Restoring the long-range solvency in the '77 Amendments, did that only
require that we put the wage base on automatics?

Ball: No, we raised the wage base by law and then continued
raising the new level automatically. But we needed more money than that.
In the 1977 Amendments, we had to increase the contribution rate schedule
too.

Interviewer: OK

Ball: When I was talking about the solution of just increasing
the wage base back in the Ford Administration, and in the early part of
the Carter Administration, the estimates for the long-run were more favorable.

Interviewer: OK

Ball: But by the time the 1977 Amendments were enacted
inflation had gotten pretty high and the system was in more deficit then
we had previously thought. We didn't have to increase the tax rate right
away, but the rate was increased down the road in the '77 Amendments.
They have never been increased since. It's a mistake for people to say
that the 1983 Amendments increased the tax rate, they moved the effective
date of some rates up earlier, but the rates themselves were not increased.

Interviewer: OK. Now, there's a difference, at least politically,
between putting the wage base on an automatic increase, which is something
that happens prospectively, and making a one-time increase in the wage
base, which employers, for example, tend to see as an increase in their
costs, and so on. There tends to be more political resistance to an increase
in the wage base of that type.

Ball: Increases in the wage base have always been a problem
for conservatives. Partly, as you suggest, there is just an additional
cost. But, partly also, because it is an expansion of the role of social
insurance, as against private insurance. You are now making the program
more effective for middle-income people, that's who an increase in the
wage-base affects, and at a level that insurance companies think they
can sell private plans. I don't remember specifically whether that was
a special problem in 1977. But throughout the history of the program,
it has been something of a problem.

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